Filed 6/20/12 Wilson v. Hynek CA4/1
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COURT OF APPEAL, FOURTH APPELLATE DISTRICT
DIVISION
ONE
STATE
OF CALIFORNIA
ROBERT W. WILSON et al.,
Plaintiffs and Appellants,
v.
BRIAN HYNEK et al.,
Defendants and Respondents.
D057620
(Super. Ct. No. 37-2008-000104260-
CU-BC-NC)
APPEAL from a judgment of the
Superior Court
of
County, Earl H. Maas III, Judge. Affirmed.
This action
arises out of a loan to a real estate development property company, Pergola, a
Nevada LLC controlled by plaintiff Robert W. Wilson. The loan was secured by a deed of trust on
undeveloped land owned by Wilson's
company and a deed of trust on a residence owned by Wilson and his wife,
plaintiff Sharon Wilson (together, the Wilsons). Defendant Coast Capital Mortgage Company
(Coast), a licensed real estate broker, and Coast Capital Income Fund, LLC
(together, Coast defendants) arranged for a $1.6 million loan (the Pergola
loan) from defendant Polo Investment Fund No. 1, LLC (Polo 1) and Polo
Investment Funds, LLC (together, Polo Fund).
Thereafter, Pergola borrowed an additional $1.25 million from Aztec
Financial (the Aztec loan), also secured by a deed of trust on the undeveloped
land. Subsequently, Pergola borrowed
an additional $500,000 from Brian and Gayl Hynek (the Hyneks), secured by a
third deed of trust on the undeveloped land.
When the
loans matured and Pergola did not pay them off, nonjudicial foreclosure
proceedings were instituted. Before the
foreclosure process was complete, the Hyneks purchased the loans from Polo 1
and Aztec Financial.
The Wilsons
filed the instant action against Coast, Polo Fund and the Hyneks, alleging that
that
they had resisted putting up their residence as additional security, but that
they did so because a representative of Coast and Polo Fund, Joe Monte, orally
represented to them that: (1) in the
event of a foreclosure, the lender would first foreclose on the vacant land
and, only if there were a deficiency, would the lender foreclose on their
residence; (2) the residence would be released once they provided Polo Fund
with an appraisal showing the vacant land to be worth at least $5 million; and
(3) the loan documents would guarantee and provide that the residence would
only be foreclosed upon if there were a deficiency after the foreclosure of the
vacant land. The complaint alleges that
they signed the loan documents based upon Monte's representations. The complaint further alleges that the Hyneks
conspired with the other defendants to foreclose on the residence.
Defendants
filed a series of demurrers, which, after the second demurrer, left only causes
of action for unfair business practices under Business and Professions Code
section 17200 (all undesignated statutory references are to the Business and
Professions Code) and intentional infliction of emotional distress in the Wilsons'
second amended complaint. The court
sustained the defendants' demurrers to these remaining causes of action without
leave to amend.
On appeal,
the Wilsons contend the court erred
in sustaining the demurrers to their second amended complaint because (1) their
unfair business practices claim was properly pled; and (2) their emotional
distress cause of action was also properly pled. The Wilsons
also contend they should be given leave to amend because the notice of default
recorded during the foreclosure process was defective because it was recorded
by the wrong entity. We affirm.
FACTUAL
AND PROCEDURAL BACKGROUND
Because we are reviewing a judgment of dismissal
following the sustaining of a demurrer, we take much of the factual background
from the applicable complaint in this action.
The applicable complaint is the Wilson's
second amended complaint.
A. The Pergola Note and Related Deeds of Trust
In
early 2004 Wilson was
manager of Pergola, which was in the process of purchasing 22 acres of land in Carlsbad for
development or for resale (Carlsbad
vacant land). In order to obtain funds
necessary to acquire the Carlsbad
vacant land, Pergola, through the Coast defendants, arranged for a $1.6 million
loan (the Pergola loan) with Polo 1
as the lender.
The
Pergola loan was evidenced by a note secured by deed of trust (Pergola note)
dated January 12, 2004,
and was executed by Mr. Wilson as manager of Pergola. The Pergola note was secured by a first
land and was also executed by Mr. Wilson as manager of Pergola (Pergola deed of
trust), by a second deed of trust executed by Wilson and his wife, Sharon L.
Wilson (Wilson deed of trust) on their personal residence on Amberwood Court in
Carlsbad (the Amberwood property), and by a deed of trust on a condominium
owned by the Wilsons.
The Wilsons' complaint alleges that
just prior to the close of the Pergola loan, Monte, an agent of the Coast defendants,
told Mr. Wilson that, in addition to the Carlsbad vacant land, the lender
required two additional properties as security for the Pergola loan; i.e., the
Amberwood property and a condominium owned by the Wilsons. The Wilsons also asserted that they resisted
putting up such additional security, but that they did so because Monte orally
represented to them that: (1) in the
event of a foreclosure, the lender would first foreclose on the Carlsbad vacant
land and, only if there were a deficiency would the lender foreclose on the
Amberwood property or the condominium; (2) the Amberwood property and the
condominium would be released once they provided Polo Fund with an appraisal
showing the Carlsbad vacant land to be worth at least $5 million; and (3) the
loan documents would guarantee and provide that the Amberwood property would
only be foreclosed upon if there were a deficiency after the foreclosure of the
Carlsbad vacant land. The complaint
alleges that they signed the loan documents based upon Monte's
representations,.
The second amended complaint alleges
that around October 2004 the Wilsons
provided the Coast defendants with an appraisal for $6.6 million on the Carlsbad
vacant land and information that Pergola had a pending resale of the property
for $7 million. The complaint also
alleges that, contrary to the representations by Monte, defendants agreed to
release the condominium, but not the Amberwood property, even though the Wilsons
complied with all of the conditions of the oral
release agreement.
Second Deed of Trust on Carlsbad
Land
In or
about March 2004, Pergola borrowed an additional $1.25 million from Aztec
Financial and secured it with a second deed of trust only on the Carlsbad
vacant land.
C. The
Hyneks' Third Deed of Trust on
Land
On April 19, 2004,
Pergola borrowed $500,000 from the Hyneks (Hynek loan), and secured it by a
third deed of trust on the Carlsbad
vacant land.
The Hyneks Foreclose on the
Land
The
Hynek loan matured on April
21, 2005. On May 6, 2008,
the Hyneks foreclosed on their third deed
of trust and became the owners of the Carlsbad
vacant land, subject only to the Pergola deed
foreclosure, the Hyneks purchased the deed of trust securing the $1.25 million
Aztec loan.
on the Pergola Loan and Wilson Deed of Trust
In or
about April/May 2008, Polo 1 and the Coast defendants commenced separate
foreclosures on the Pergola deed of trust and on the Wilson
deed of trust, setting the sale of
the Carlsbad
vacant land for August
5, 2008, and the sale of the Amberwood property for August 15, 2008.
Due at Foreclosure Sale
The
complaint alleges that the Wilsons were "ready, willing and able" to bid at
the trustee's sale the amount due at the foreclosure sale of the Pergola deed
of trust set for August 5, 2008, or, alternatively, that they would be willing to
purchase the Pergola note. In
support of this allegation, the complaint quotes from a letter sent by the Wilsons'
attorney to the attorney for the Coast defendants:
"Mr.
Wilson has
arranged to facilitate a bid on the 22 acres, which will meet or exceed
the $1,856,316.77 loan balance. Mr.
Wilson plans
to provide payment for the 22 acres in the form of a cashier's
check. In lieu of a Trustee's Sale
on the 22 acres, Mr, Wilson has also offered to purchase the Deed of
Trust for $1,856,316.77. Mr. Wilson is willing and able to pay the
debt which will release the Deed of Trust on the Amberwood residence. (Italics added.)
That letter
also protested any postponement of the sale of the Carlsbad
vacant land and informed the defendants that "if the Amberwood residence
is sold prior to the [Carlsbad
vacant land], your clients will be the Defendants in causes of action for
wrongful foreclosure."
The
complaint further alleges that defendants "conspired and agreed among
themselves not to hold a foreclosure sale for the [Carlsbad vacant
land], but instead to assign the note and first deed of trust for $1,660,000 to
Defendants HYNEK, who would then offer the deed of trust and note as collateral
to Defendants [Polo 1] and [Coast defendants]." The complaint alleges that defendants were
"attempting to avoid foreclosing on the 22-acre parcel so that defendants
HYNEK could hold title to that property and still be allowed to proceed with
their foreclosure on [the Wilsons']
residence."
G. Trustee's
Sale
Amberwood Property
On November 19, 2008,
the trustee's sale under the Wilson
deed of trust was concluded and the Amberwood property was sold to defendant
U.S. Financial LLP.
PROCEDURAL
BACKGROUND
A.
In
December 2008 the Wilsons filed a complaint alleging causes of action for
declaratory relief, wrongful foreclosure, breach of contract, equitable relief
from foreclosure sale, quiet title, cancellation of instrument, violation of
section 17200, fraud and intentional infliction of emotional distress.
In
addition to making substantially similar allegations as are recited,
the loan documents and deeds of trust related to the transactions. The deeds of trust state that "[t]o the
fullest extent allowed by law, Borrower
hereby expressly waives any right which it may have to direct the order in
which any of the Property shall be sold in the event of any sale or sales
pursuant to this Deed of Trust."
(Italics added.) The deeds of
trust state that "Trustee and Lender, and each of [them]
Trust and any other rights or security now or hereafter held by Lender or
Trustee in such order and manner as they or either of them may in their
absolute discretion determine."
(Italics added.) The deeds of
trust further state: "Lender, at
any time and without the consent of Borrower, may grant participations in or
sell, transfer, assign and convey all or any portion of its right, title and
interest in and to the Loan, this Deed of Trust and other Loan Documents,
guaranties given in connection with the Loan and any collateral given to secure
the Loan."
The
Coast defendants and Polo Fund demurred to the complaint, and the court
sustained the demurrer without leave to amend as to the first two causes of
action, finding that pursuant to the deeds of trust, the Wilsons
waived their right to direct the priority and order of the foreclosure. The court also sustained without leave to
amend the causes of action for equitable relief from foreclosure, quiet title
and cancellation of instrument because those defendants did not claim an
interest in the property. As to the
remaining causes of action, the court sustained the demurrer with leave to
amend.
The
court sustained the Hyneks' demurrer without leave to amend as to all causes of
action with the exception of the cause of action for unfair business practices
and intentional infliction of emotional distress.
The Wilsons
filed a verified first amended complaint that stated causes of action for
practices, fraud, intentional infliction of emotional distress and equitable
relief. The complaint again attached
the relevant loan documents and deeds of trust.
In
response, the Hyneks, the Coast
defendants and Polo Fund again demurred, and the court sustained the demurrers
without leave to amend as to all but the causes of action for unfair business
practices and intentional infliction of emotional distress. The court sustained the demurrers to the
cause of action for breach of contract based upon the statute of frauds because
it only referenced the alleged oral agreement with Monte. The court sustained the demurrers to the
cause of action for fraud based upon the statute of limitations. There was no cause of action for equitable
relief pleaded in the first amended complaint.
The court also admonished the Wilsons
"not to file an amended Complaint containing allegations inconsistent with
the previously verified Complaints filed in this case."
The Wilsons
filed a second amended complaint containing only causes of action for unfair
business practices and intentional infliction of emotional distress, as
detailed in the factual background, ante. However, the second amended complaint omitted
as exhibits the loan documents attached to the first two complaints and omitted
any references to those exhibits.
The
defendants filed demurrers to the second amended complaint, which the court
sustained without leave to amend. As to
the first cause of action brought under section 17200, the court found that the
Wilsons
have "failed to plead facts indicating that the lawful acts taken by defendant Coast
were unlawful, fraudulent or unfair."
As to the cause of action for intentional infliction of emotion
distress, the court found "the allegations as [pled] do not rise to the
level of 'extreme and outrageous.'"
This
timely appeal follows.
name="_ftnref1" title="">[1]
DISCUSSION
I. STANDARD
OF REVIEW
We
review an order sustaining a demurrer without leave to amend de novo (
318), assuming the truth of all properly pleaded facts as well as facts
inferred from the pleadings, and give the complaint a reasonable interpretation
by reading it as a whole and its parts in context. (Palacin
v. Allstate Ins. Co. (2004) 119 Cal.App.4th 855, 861.) However, we give no credit to allegations
that merely set forth contentions or legal conclusions. (Financial
Corp. of America v. Wilburn (1987) 189 Cal.App.3d 764, 768-769.) A complaint will be construed
"liberally . . . with a view to substantial justice
between the parties." (Code Civ.
Proc., § 452.) If the complaint
states a cause of action on any possible legal theory, we must reverse the
trial court's order sustaining the demurrer.
(Palestini v. General Dynamics
Corp. (2002) 99 Cal.App.4th 80, 86.)
Whether a plaintiff will be able to prove its allegations is not
relevant. (Alcorn v. Anbro Engineering, Inc. (1970) 2 Cal.3d 493, 496.)
II. ANALYSIS
A.
Action
Section
17200 defines "unfair competition" to "mean and include any
unlawful, unfair or fraudulent business act or practice and unfair, deceptive,
untrue or misleading advertising" under section 17500. A claim made under section 17200 "'is
not confined to anticompetitive business practices, but is also directed toward
the public's right to protection from fraud,
deceit, and unlawful conduct.
[Citation.] Thus, California
courts have consistently interpreted the language of section 17200
broadly.'" (South Bay Chevrolet v. General Motors Acceptance Corp. (1999) 72
Cal.App.4th 861, 877, quoting Hewlett v.
Squaw Valley Ski Corp. (1997) 54 Cal.App.4th 499, 519.) "[S]ection 17200's definition is
'disjunctive,' the statute is violated where a defendant's act or practice is
unlawful, unfair, fraudulent or in violation of section 17500." (South
Bay Chevrolet v. General Motors Acceptance Corp., supra, 72 Cal.App.4th at p.
878; State Farm Fire & Casualty Co.
v. Superior Court (1996) 45 Cal.App.4th 1093, 1102.)
The
Wilsons do not assert on appeal that any of the defendants' actions were
"unlawful" or "fraudulent."
Rather, the sole basis for their assertion they have adequately pled
such a cause of action under section 17200 is that the defendants' actions were
"unfair." This contention is
unavailing.
"Determination
of whether a business practice or act is 'unfair' within the meaning of
[section 17200] entails examination of the impact of the practice or act on its
victim, '" . . . balanced against the reasons,
justifications and motives of the alleged wrongdoer. In brief, the court must weigh the utility of
the defendant's conduct against the gravity of the harm to the alleged
victim . . . ."
[Citation.]' [Citation.] In general the 'unfairness' prong 'has been
used to enjoin deceptive or sharp practices. . . .'" (Klein
v. Earth Elements, Inc. (1997) 59 Cal.App.4th 965, 969-970.)
There is a split of authority
in California as to the proper definition of "unfair." The Wilsons assert the proper test for the
unfairness prong is whether the practice "'offends an established public
policy or when the practice is immoral, unethical, oppressive, unscrupulous or
substantially injurious to consumers.'"
(State Farm Fire & Casualty
Co. v. Superior Court, supra, 45 Cal.App.4th at p. 1104.)
However,
this court has, on three occasions, rejected that test and has applied a much
narrower test, the so-called "Cel-Tech test" for establishing
unfairness. (See Durell v. Sharp Healthcare (2010) 183 Cal.App.4th 1350, 1366;
108 Cal.App.4th 917, 940; Byars v. SCME
Mortgage Bankers, Inc. (2003) 109 Cal.App.4th 1134, 1147.) Under that test, a plaintiff must prove that
the defendant's "conduct is tethered to an[] underlying constitutional,
statutory or regulatory provision, or that it threatens an incipient violation
of an antitrust law, or violates the policy or spirit of an antitrust law." (Durell,
at p. 1366.)
In
both their opening and reply briefs,
the Wilsons ignore these cases.
Moreover, they do not even attempt to show how their allegations in the
second amended complaint can meet this test.
Nor can they. As detailed,
are directly contradicted by the terms of the deeds of trust, which they
omitted as exhibits to their second amended complaint. Accordingly, the court did not err in
sustaining the defendants' demurer to the section 17200 claim.
B.
"The
elements of a prima facie case for the tort of intentional infliction of
emotional distress are: (1) extreme and
outrageous conduct by the defendant with the intention of causing, or reckless
disregard of the probability of causing, emotional distress; (2) the
plaintiff's suffering severe or extreme emotional distress; and (3) actual and
proximate causation of the emotional distress by the defendant's outrageous
conduct. [Citations.] . . . Conduct to be outrageous must be so extreme
as to exceed all bounds of that usually tolerated in a civilized
community." (Cervantez v. J. C. Penney Co. (1979) 24 Cal.3d 579, 593.)
The
court properly sustained the demurrer to the cause of action for intentional
infliction of emotional distress because the Wilsons have not pled any
allegations of conduct by the defendants that could be considered
"outrageous." At most, this
was a creditor/debtor situation, whereby the defendants were exercising their
rights under the loan agreements. There
are no allegations that in conducting the foreclosure proceedings any of the
defendants threatened, insulted, abused or humiliated the Wilsons. Thus, the Wilsons cannot state a claim for
intentional infliction of emotional distress.
C.
For
the first time on appeal, the Wilsons assert they can amend the complaint to
challenge the nonjudicial foreclosure sale of the Amberwood property because
the notice of default was not recorded by E.C.I. Corporation, the original
trustee named in the Wilson deed of trust, but rather by PLM Lender Service as
agent for the beneficiary. This
contention is unavailing.
Civil
Code section 2924 et seq. provides a comprehensive scheme for regulation of
nonjudicial foreclosure sales. (
192 Cal.App.4th 1149, 1154.) Civil Code
section 2942, subdivision (a)(1) states in part that "[t]he trustee,
mortgagee, or beneficiary, or any of
their authorized agents shall first file for record, in the office of the
recorder of each county wherein the mortgaged or trust property or some part or
parcel thereof is situated, a notice of default." (Italics added.)
Thus,
the recording of a notice of default by an authorized agent of the beneficiary
is specifically authorized by that statute, and the Wilsons cannot state a
claim for a defect in the recording of the notice of default.
DISPOSITION
The judgment is affirmed.
Defendants shall recover their costs on appeal.
NARES,
Acting P. J.
WE
CONCUR:
McDONALD,
J.
IRION,
J.
name="_ftn1" title="">[1]
In their respondents' brief, the
Hyneks assert that this appeal is premature because it is taken from the
court's order sustaining defendants' demurrers, not the final judgment in this
matter. However, as is pointed out by
the Wilsons in their reply brief, the clerk of this court notified the parties
by a letter dated June 29, 2010, that we would consider the appeal as being
from the judgment or dismissal order.
name="_ftn2" title="">[2]
Polo Fund and the Coast
Defendants also assert that the Wilsons' section 17200 claim is barred by the
statute of limitations. However, as we
have concluded that the section 17200 claim fails to state a cause of action as
a matter of law, we need not address this alternative contention.
